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Title: Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy

Author(s): Nils Gornemann, Keith Kuester and Makoto Nakajima

Publication Date: April 2016

Keyword(s): General Equilibrium, Heterogeneous Agents, Monetary policy, Search and Matching and Unemployment

Programme Area(s): Monetary Economics and Fluctuations

Abstract: We build a New Keynesian business-cycle model with rich household heterogeneity. A central feature is that matching frictions render labor-market risk countercyclical and endogenous to monetary policy. Our main result is that a majority of households prefer substantial stabilization of unemployment even if this means deviations from price stability. A monetary policy focused on unemployment stabilization helps "Main Street" by providing consumption insurance. It hurts "Wall Street" by reducing precautionary saving and, thus, asset prices. On the aggregate level, household heterogeneity changes the trans mission of monetary policy to consumption, but hardly to GDP. Central to this result is allowing for self-insurance and aggregate investment.

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Bibliographic Reference

Gornemann, N, Kuester, K and Nakajima, M. 2016. 'Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11233